Bush says U.S. is not headed for recession

What a JOKE!! Who’s going to believe anything he says? And while I’ll give him props for being optimistic, his optimism, however, is only appropriate up until a point; not when it transcends the facts and reality. How does he know the economy is not headed for a recession? He doesn't know. Honestly, I don't think anybody knows. I get the feeling that on some level Bush believes that if he SAYS the economy will not go into a recession this will make the American people feel better. Moreover, he seems to be completely indifferent to the fact that what he says might or might not be true. And the weird thing is no one holds him accountable. I don’t understand it. It is hard to believe anything he says anymore.

As for the economy, in the short-run, it may or may not sink into a recession, and if it does, it will be short. Personally, I don’t believe that the housing slump and credit crisis is as bad as the news media portrays it. Nevertheless, is seems like the financial institutions and the administration has convinced the news media and Fed that the crisis is epic. Their motive seems to be straight forward, to get the fed to lower interest rates and in turn, reduce mortgage losses. And the fed has conceded and done so, hopefully avoiding a imminent recession or making it as benign as possible, the real recession is about a year or two away.

The rub is that the Fed has lowered interest rates in an environment of raising inflation. This deviates from the fed’s price stabilization policy followed religiously under Greenspan. Why? I'm not sure. Possibly Bernanke doesn't have the political clout to resist pressure from the financial institutions and administration.

Nevertheless, it seems plausible that by cutting interest rates the Fed can bypass an imminent recession, by mitigating the severity of the housing slump and credit crisis, but it seems to be only a temporary fix. The lower interest rates (i.e. easy money policy) will continue to fuel the already rising rate of inflation. Eventually, the Fed will have to resort back to price stabilization polices, which should be their primary objective anyway, and get inflation back under control by increasing interest rates again. Remember back in the early 80’s when Volker’s (previous fed chief) in an effort to get inflation under control tighten the money supply so rapidly that interest rates rocketed to 20% levels, which pushed the economy into the a 16 month recession from July 1981-Nov 1982? It’s the late 70’s stagflation all over again: high gas prices, stalled economic growth and rising inflation. A recession most likely will follow.

Winners: The Bush Administration, sub-prime borrowers/home owners, and financial institutions that invested in the sub-prime mortgage (their mortgage losses will be minimized).

Losers: The Obama Administration and the remainder of the public. The Bush Administration and Fed are delaying the recession into the next administration.

This means, the Obama administration, and the Fed serving him, will most likely have to tighten the money supply immediately upon entering office and get inflation under control quickly and get the economy growing again. Obama will be up for election again in 2012. A further delayed recession could affect his re-election.